USD: Solid momentum - ING

The sharp drop in oil prices has been the biggest market story this week. Yesterday, the Israeli prime minister said the country is considering US concerns when planning a retaliatory attack on Iran. That broadly endorsed reports that Israel should target military infrastructures but not Iran's oil and nuclear facilities. The soft growth story and some disappointment about the recent stimulus announcement in China are contributing to oil's underperformance, ING's FX analyst Francesco Pesole notes.

Upcoming retail sales may print respectable numbers

"There is probably a case for oil prices to stabilise now that most Middle-East-related gains have been trimmed, and considering some lingering uncertainty about Israel's retaliation. Another leg lower in the dollar would likely need to be triggered by some soft data, but the US calendar is currently quite light, and tomorrow's retail sales may print respectable numbers."

"Instead, we continue to see a non-negligible risk that markets will place some 'Trump hedges' by buying dollars ahead of a closely-contested US election, which could end up out-shadowing a potential downward correction in front-end USD rates. The timing of that is - however - quite uncertain. The predominance of the Fed story as a driver, mixed with earnings and the Middle East turmoil, means markets may keep trading outside of the US election sphere until only a few days before the vote, and then unwind the riskiest positions."

"Yesterday, Donald Trump spoke at an event and discussed two important points for markets: tariffs and Fed independence. He sounded particularly hawkish on protectionism, particularly targeting US car imports from Europe and Mexico. On the Fed, he said that he would not temper with the Fed's independence, but equally claimed that the president should have a say on rates."